How to Make the Best of Bankruptcy – Guest Post
Filing bankruptcy can be a very powerful financial solution. It can wipe out and reorganize debts, allow you to stop lawsuits, garnishment, bank levies and incessant calls and letters from creditors. If you are current on the payments to creditors, but are struggling to make payments, bankruptcy can make debt repayment more manageable, and allow you to start saving money.
That said, the benefits of bankruptcy vary across the board for different people. Sometimes bankruptcy is a huge relief, and sometimes it would not accomplish the person’s goals at all. Even if filing bankruptcy is potentially a good idea, the person may rush into the case without proper planning and loses some of the potential benefits.
To make sure that bankruptcy is a right choice for you, and that you make the best of it, I suggest the following:
(1) Consult with a local bankruptcy attorney so that you understand what bankruptcy can and cannot accomplish in your situation, and what the bankruptcy trustee and the creditors are allowed to do. Many attorneys offer a free initial consultation. Bankruptcy petition preparers cannot give you legal despite, and despite of what they claim, there is more to know about bankruptcy than how to fill out different forms.
Don’t allow yourself to be rushed, and do consider the non-bankruptcy options. If you file a bankruptcy petition which is not successfully completed, or which does not accomplish your goals, the note about the bankruptcy case will still remain on your credit report.
Some situations where bankruptcy may not necessarily be a good solution include:
• Having only debts which cannot be discharged through bankruptcy, such as student loans, spousal support or recent tax debts.
• Having only potential creditors, but no significant actual claims against you. If you think some creditor may or may not have a claim against you, there is not much point for filing bankruptcy as a pre-emptive strike. Maybe the claim would not materialize, would be much smaller than you thought, or could be more easily resolved through non-bankruptcy means.
In some situations it may make sense to wait to file bankruptcy, for example:
• If you gifted anything of significant value in the last couple of years to anyone, it may be better to wait to file so that the bankruptcy trustee does not label this transfer as fraudulent and seek to recover the asset.
• If there is a pending divorce and/or division of property, it is usually better to finalize this before the bankruptcy case so that it’s clear what your assets are, and to see if your income would change because of child support or alimony payments.
In terms of what bankruptcy can do for you, the big points are that:
• Filing bankruptcy usually imposes automatic stay against creditors’ collection activities. There may not be a stay if you recently had filed other bankruptcy cases that were dismissed.
• Bankruptcy discharges pre-petition debt. Debt incurred post-petition is not discharged.
(2) Carefully examine your income, expenses, debts and the value of your assets. This is very helpful before filing bankruptcy, so that you can better lay out your goals. This is also very helpful during the bankruptcy case and post-bankruptcy so that you can build a solid financial foundation, improve your credit, and avoid new debts.
• Examine your income and expenses. The best way to get a realistic picture is to examine your banks statements for the last few months, or at the very least for one complete month. If you want to sort or categorize expenses, your bank and numerous free software programs (one example is mint.com) could provide the excellent tools to do that.
In my Bay Area bankruptcy practice, I have noticed that people often understate or misjudge expenses. It is helpful if you set budget goals, but looking at your goals alone is not enough.
Consider if any expenses seem unnecessary or excessive. For example, you may be paying for memberships which you never use. Or, you may be spending a lot on gifts out of the sense of obligation and custom, and not because the gift-giving is truly enjoyable or appreciated. You and your friends and relatives could agree to do away with or minimize gift exchanges.
• Carefully examine your pay checks. Do you understand what all the deductions are for? Many people are so used to seeing the net amount, that they don’t consider the bigger picture. For example, if you are paying for any kind of insurance, make sure you the benefits are the ones that you have requested and have a need for. If you paying for commuter benefits or flexible spending accounts, make sure you are actually taking advantage of them, or you may end up losing these funds.
• Periodically check your credit report to make sure the information on it makes sense to you. Free credit reports from each of the three credit reporting agencies are available to consumers once a year from annualcreditreport.com.
(3) Always have a safety net – make sure your insurance is adequate, and try to set something aside each month for emergencies. No matter how much you make, or how much debt you have already gotten rid of, if you don’t have a safety net, you are setting yourself up for a financial disaster.
If setting any money aside seems like an impossible task, refer to point (2) above.
If the problem is that you are paying for overwhelming debt and have nothing left at the end of the day, this may be time to refer to point (1) and consult a bankruptcy attorney about your options. You may benefit from filing bankruptcy. If you are already in the bankruptcy case but your situation has changed, it is often possible to change your payment plan or make other adjustments in the case to make sure you are able to complete it successfully and receive a discharge.
Victoria Maydanik is a popular San Jose bankruptcy lawyer, helping Bay Area residents get a fresh financial start.